Contract (as) Social Responsibility (Part 1): Revenge of the Nerds

On a sunny Saturday morning in April I found myself in an airless room in an exceptionally beige Orlando conference hotel discussing what would, to many, be the nadir of contract nerd-dom:  model supply chain terms.

Supply chain agreements set forth the rights and responsibilities of buyers and sellers of goods that lead to products that affect just about everyone who participates in the market economy.  It reportedly takes about 200 contracts to make an iPhone—a number that strikes me as pretty low.

These contracts are important, of course, but only in the same sense that contract terms on indemnification, ERISA, and choice-of-law are important: they are the province of hardcore law junkies because they are so boring no one would really want to spend time thinking about them unless paid to do so.

And, yet, the Orlando conference room was electric.  That’s because these were not the usual supply chain terms dealing with, e.g., quantity, price, delivery, etc.  Instead, this was a meeting of the Working Group to Draft Human Rights Protections in Supply Contracts of the Business Law Section of the American Bar Association (“Working Group”), and the terms we were talking about seek to solve some of the most troubling ethical problems presented by market globalization:  baseline human rights protections for those who work for or with companies in the modern global supply chain.

I will call these terms one of many examples of “Contract (as) Social Responsibility”: efforts to achieve social justice through contract as a formal, legal instrument.

I find just about every word in the preceding paragraph (including “I” and “will”) to be problematic—in an interesting sort of way—and am grateful to the keepers of Concurring Opinions for permitting me to spend the month of May trying to develop my thoughts on this.

 

Contract (as) social responsibility (which I will abbreviate “KSR,” for reasons explained below) interests me for at least four reasons.

First, it may concretize the vague aspirations of “corporate social responsibility” (“CSR”).  Many view CSR as evidence of “good governance,” a “win-win” because it suggests that proper stewardship of corporations enables shareholders both to profit and to feel good about it.

But, as I hope to suggest in future posts here, CSR as a literature and a theory of action are frustrating.  Corporations can do nothing on their own.  CSR’s advocates may believe that corporations can, under the right conditions, “save the world,” but they are surprisingly vague (beige?) about how this should happen.  I abbreviate contract (as) social responsibility “KSR” to distinguish it from CSR because I think a potential benefit of KSR is that it may be more effective at achieving the social goals that purportedly motivate CSR than CSR, itself.

Second, KSR presents a number of interesting theoretical questions.  It may, for example, be economically rational for General Motors to require its suppliers to respect the human rights of employees in its supply chain, so long as doing so doesn’t drive up the price of parts too high.  But what if suppliers push back (as they might) and say that providing decent wages and benefits isn’t cheap, and someone has to pay for that, and that someone should be the party who wants it (GM)?

Maybe the answer is that GM eats the cost, on a long-term-shareholder-value theory.  But it is not hard to see the problem:  KSR is no free lunch, so unless “responsible” buyers (or “de-tainted” suppliers) are absorbing these costs or passing them on, it would appear that they are using contract for something other than (or in addition to) immediate economic gain.

Contract is obviously a plausible mechanism for non-economic promissory exchange—but it’s not a great one.  Thus, I will suggest, conventional wisdom would hold that problems such as human rights in the supply chain (“HRSC”), are not properly problems of contract law at all, but instead of “public” law.  Indeed, this has been the pattern, until recently.

But that, then, frames the issue:  KSR suggests important theoretical challenges to views about the boundaries of, and interactions between, “public” and “private” in law.  If KSR works—and I would be the first to concede that it may not—it would use private ordering mechanisms to alter matters of historically public concern. It could challenge conventional academic notions about the interplay of social institutions at foundational levels.  It may create the opportunity to develop tractable plural theories of law and legal action that speak to the sense that we’d all be better off if we shook off law’s tiresome binary yoke.

Third, KSR presents some doctrinal issues.  Think about remedies.  If the baseline in US contract law is “expectation”—put the non-breacher where she should reasonably have been in performance—what could that mean here?  If it turns out a supplier breached by using slaves, what is GM going to do?  Their expectation of a clean labor supply has already been defeated, and it is hard to see how money (cover or lost profit) could fix that.  But it is equally difficult to imagine a court ordering specific performance, much less achieving it in a foreign country with legal regimes that may lack the institutional force of ours.

Finally, consider empirical questions.  How are we supposed to know whether KSR is actually happening—and whether it works?  It is one thing for GM to post its model supply chain terms on the internet; it is another to know whether they are actually used in supply chain contracts and, if so, the results they achieve.  As my former colleague Stewart Macaulay often observes, there is a big difference between the “real deal” and the “paper deal.”  While monitoring and auditing for human rights abuses in the supply chain has become big business, it can be difficult to know whether it works.  Maybe there are data in defeat?

When I talk about this project with friends and colleagues, they tend to become as excited as the folks in the Orlando conference room:  there is potential not only to do social good, here, but also to study something interesting, to move beyond exceedingly tired (beige?) debates about, e.g., whether particular theories/policies/rules are “efficient” or not.   If KSR is “a thing”—and that, in essence, is what I am trying to figure out—it could present significant opportunities for legal analysts and practitioners.

So, I hope you will let me know in the coming weeks:  Is KSR a thing worth studying or doing (or both)?  My hope, perhaps naïve, is that KSR will bring color and energy to contract beyond the beige walls that, like the Orlando conference hotel, have too long confined it.

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2 Responses

  1. Naomi Cahn says:

    I will look forward in your future posts to more differentiation between CSR and KSR. When corporations act responsibly, their contracting practices should be part of that effort, right?

    • Thanks, Naomi. I think that’s one of the questions: What is the relationship between corporate and contract social responsibility? CSR has not focused much on contract, looking instead at corporate codes and policies as mechanisms of corporate action. In principle, contract is not necessary: corporations could just do “the right thing,” whatever that is. But especially for firms with long supply chains, that may be difficult without some contractual changes. An alternative question is whether contract has any greater potential for impact–or whether it is just more feel-good puffery? If you are a CRS-doubter, you may view KSR just as skeptically. And, of course, there was a view at one time that corporations were nothing but a “nexus” of contracts, although I don’t think adherents of that position had human rights-related contract terms in mind when developing that body of thought.

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